Government Goes Too Far On Microsoft Case

The 5 days since the release of the proposed settlement between Microsoft and the U.S. Department of Justice have seen a barrage of complaints from Microsoft's competitors and state attorneys general.<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />

Their gist is that the deal does too little to constrain Microsoft and that it leaves the company free to add new features to Windows and, in general, to continue to be an aggressive competitor.

In fact, the real worry should be exactly the opposite: that the settlement does too much and embodies government hubris about its own ability and right to fine-tune high-tech industries.

Hubris is defined as “exaggerated pride or self-confidence,” and in Greek tales it often called forth Nemesis, the goddess of retribution. Any penance she exacts here could seriously impact the national economy, so the concern is not trivial.

Microsoft's sins, as the case emerged from the federal appeals court, involved a few actions designed to maintain the firm's power in the narrowly defined market of operating systems for personal computers running on chips made by Intel. The settlement extends far beyond this limited area. It deals with Internet services, server computers, media players, online delivery of intellectual property and even e-mail and instant messaging. It meddles casually in an intense ongoing contest among IBM, Hewlett-Packard, Microsoft, Sun and others over whether software code should be secret and proprietary or open to all and owned by none. It has serious ramifications for the shifting balances among mainframes, servers, PCs, local networks, the Internet, distributed computing and other complicated choices.

Anyone who believes that the government officials involved in the settlement have a good grasp of its impact in all of these areas, or in any of them, has been spending too much time in the Drug Enforcement Administration's evidence room. This isn't meant as a particular insult; no one understands the settlement's impact. A lesson reinforced by the tech-sector roller coaster of the past decade is that complex reality is hard to grasp. That is why we rely on the genius of the marketplace, which harnesses the total knowledge of society (think of distributed computing), not on some supposedly omniscient regulator (think of an outdated mainframe).

When the government intervenes, it tends to side with incumbents over innovators and to compel order at the expense of creativity. These traits are prominently on display in the Microsoft settlement.

James V. DeLong is a senior fellow at the Competitive Enterprise Institute, a free-market think tank.

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